Switzerland’s growth trajectory over the medium term will be increasingly powered by consumer spending, with the potential for the government to step in and boost growth in the event that the situation in the eurozone puts a sharp break on Swiss growth. The Swiss National Bank has set a ceiling on the Swiss franc’s value versus the euro in the face of substantial appreciatory pressures resulting from the eurozone sovereign debt crisis. This will help to protect the country’s export sector from a severe loss of competitiveness and thereby limit the impact of external turbulence on near-term economic growth. However, the massive scale of the monetary easing involved in such foreign exchange intervention could dramatically inflate property prices if maintained into the medium term.

Major Forecast Changes

We have revised our 2014 and 2015 exchange rate forecasts to CHF1.24/EUR and CHF1.27/EUR from CHF1.26/EUR and CHF1.29/ EUR respectively.

Table Of Contents

Executive Summary 5Core Views 5Major Forecast Changes 5Key Risks To Outlook 5Chapter 1: Political Outlook 7SWOT Analysis 7BMI Political Risk Ratings 7Domestic Politics 8Immigration Quota Vote Risks EU Relationship 8Swiss voters have supported a referendum bill to cap the level of immigration. Although the government does not support immigrationquotas, it is obliged to implement the new law as a result of Switzerland's direct democracy system which enables the public to initiatereferenda. The move has already sparked a backlash from Brussels, with Switzerland's current level of access to the single market atrisk of being restricted. Moreover, we warn that over the longer term, foreign investors may be deterred from relocating to Switzerland iftheir ability to attract skilled labour is impeded.table: Political Overview 8Chapter 2: Economic Outlook 11SWOT Analysis 11BMI Economic Risk Ratings 11Economic Activity 12Recovery Will Gain Momentum In 2014 12Despite a slowdown in the fourth quarter of 2013 - underpinned by a sharp increase in imports - we stick with our fundamentally bullishview for the Swiss economy in 2014 and over the medium term. We believe that robust economic growth will be underpinned by arecovery in international trade, which will bolster Switzerland's current account surplus, and a ramp up in domestic consumer spending.While adverse developments in the nearby eurozone will remain a risk to our outlook, we believe that these risks have receded sharply.tab le: ECONOMIC ACTIVITY 12Economic Activity II 14Deflation Runs Its Course 14Despite a lurch back into deflation in February, we believe that Swiss prices will find a firmer footing over the medium term. Acombination of robust economic growth, loose monetary policy and a very modest multiyear depreciation of the Swiss franc will laythe foundations for a gradual build up in inflationary pressures. However, we warn that at this stage Switzerland is still vulnerable toa deflationary shock, with falling export prices in Germany and China, as well as a correction in global commodity markets, being aparticular cause for concern.Exchange Rate Policy 15CHF Depreciation Delayed By Russia-Ukraine Crisis 15During the period of intense financial market turmoil in the eurozone in 2012, Switzerland became a key destination for safe haven flowsgiven the relatively benign economic and political environment and depth and liquidity of Swiss markets. With the Ukraine-Russia crisisstill simmering, the Swiss franc is coming under renewed pressure. Indeed, having weakened at the beginning of the year to CHF1.24/EUR, the franc has since appreciated to CHF1.22/EUR and is flirting with the de facto ceiling previously introduced by the SwissNational Bank (SNB) to prevent a continued and destabilising appreciation of the Swiss currency. With few signs that Ukraine-Russiacrisis will suddenly and decisively deescalate, we expect the CHF to remain offered in the coming months.table: Currency Forecast 15table: EXCHANGE RATE 16Balance Of Payments 17Current Account Surplus Over Medium Term 17We expect the Swiss current account to remain firmly in surplus over the medium term. This will be predicated on continued global traderecovery in general, and in eurozone demand more specifically. However, we also believe that the Swiss consumer will play a moresignificant role in driving growth over the medium term, with demand for imports curbing continued expansion of the current accountsurplus on a relative basis.table: CURENT ACOUNT 17Banking Sector 19Recovery Under Way 19Our relatively positive outlook for the Swiss banking sector mirrors a similarly constructive view for the broader economy. We seeopportunities for banks to boost profitability in the retail market, given our assumption that consumer spending will become a moreimportant driver of economic growth over the medium term. We forecast the banking sector to expand broadly in line with GDP andtherefore expect the relative size of the industry to remain unchanged.Chapter 3: 10-Year Forecast 21The Swiss Economy To 2023 21Steady Growth To Prevail Over Long-Term 21We expect steady Swiss economic growth over our forecast period despite the global macroeconomic headwinds. We forecastSwitzerland's real economic growth to average 1.8% over our forecast period on account of the solid fundamentals underpinning thedomestic economy.tab le: Long -Term Macro economic For ecasts 21Chapter 4: Business Environment 23SWOT Analysis 23BMI Business Environment Risk Ratings 23Business Environment Outlook 24Institutions 24TABLE : BMI BUSINESS AND OPERATION RISK RATINGS 24TABLE : BMI LE GAL FRAMEWORK RATING 25TABLE: LABOUR FORCE QUALITY 26Infrastructure 27TABLE : TRADE AND INVESTMENT RATINGS 27TABLE : G20 - ANNUAL FDI INFLOWS 28Market Orientation 29Operational Risk 30Chapter 5: Key Sectors 31Telecommunications 31tab le: Telecom Sector - Fixed Lin e - Historica l Data And For ecasts 32tab le: Telecoms Sector - Int ern et - Historica l Data And For ecasts 32tab le: Telecoms Sector - Mobi le - Historica l Data And For ecasts 33Other Key Sectors 35tab le: Pharma Sector Key Indicators 35tab le: Infrastructur e Sector Key Indicators 35tab le: Autos Sector Key Indicators 35Chapter 6: BMI Global Assumptions 37Global Outlook 37Chinese Economy Under Pressure 37Tab le: Globa l Assumptions 37Table: Developed States, Real GDP GrowtH, % 38Tab le: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 38Tab le: Em erging Mark ets , Real GDP Growth , % 39

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